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Nearly one year after its reorganization plan was confirmed by the U.S. Bankruptcy Court for the Southern District of New York, and almost two years after it landed in bankruptcy, network operator Global Crossing Ltd. exited Chapter 11 protection on Tuesday. The company also closed a $250 million equity investment from Singapore Technologies Telemedia Ptd Ltd., which was the centerpiece of its reorganization. ST Telemedia won regulatory approval for the investment this year after crafting a proposal that addressed issues related to foreign ownership. “What we needed was the credibility and parental support to get us through Chapter 11, and the governance model to give confidence to customers and investors,” said the company’s CEO, John Legere, of ST Telemedia’s backing. “Even until today, there were people who didn’t really believe Global Crossing would emerge.” In the coming year, the challenge for the Florham Park, N.J., telecom and its well-funded majority investor will be to persuade customers that they should give it more business. Through its Chapter 11 case Global Crossing significantly reduced operating and capital expenditures and has maintained about $3 billion in annual revenues, roughly in line with its total for 2002. In its most recent monthly operating report to the bankruptcy court, for June, the company reported positive Ebitda though it still lost about $100 million. Reports for the first, second and third quarters of 2003, as well as a post-bankruptcy balance sheet, are due in the coming weeks. Global’s management said that one of the biggest problems it faced during its lengthy bankruptcy case was customer uncertainty about its future. With the support of ST Telemedia, Legere said, the telecom aims to win new clients because of its quality of service and improved customer satisfaction — without relying on price cuts. The company’s sales and marketing departments will test that goal in the coming months, as they try to carve out more business from existing customers and to uncover new opportunities. “Those sales people, in short order, have to convince those customers to place contracts,” said Joe D’Angelo, a director at Alvarez & Marsal and a former telecom executive. Building enough new business to make the company profitable will be a serious test, D’Angelo said, adding that the temptation to cut prices could prove great if new sales don’t materialize. “It will be a challenge,” he said. One area where Global Crossing hopes to expand is data and Internet protocol services. The company projects that it will transmit 17 billion minutes of Internet telephony traffic in 2003, 15 times its total in 2001. It also anticipates demand for advanced services like video conferencing and so-called virtual private networks, which allow employees to interact with company networks remotely using the Internet. Legere said that even with relatively modest gains, Global Crossing can establish a successful niche. “We don’t need to defeat MCI,” he said. “We don’t need to defeat AT&T.” Still, Global Crossing has said it will need about $100 million to fund operations in 2004. ST Telemedia has agreed to provide the sum if necessary, though Global is exploring other options. The company’s bond indentures allow it to have a working capital facility of up to $150 million that would be secured by the company’s receivables, and CFO Daniel O’Brien said the company has received “a lot of interest.” Global Crossing’s bankruptcy case has been a protracted affair. When the company filed for Chapter 11 protection in January 2002, it announced a $750 million sale of a 79 percent stake to Hutchison Whampoa Ltd. and ST Telemedia. The deal was eventually scuttled, however, when Global’s creditors coudn’t reach consensus on the price. After a second search for a buyer, Hutchison and Singapore again prevailed with a $250 million offer for a 61.5 percent stake. Creditors approved a reorganization plan built around that transaction, though the government’s Committee on Foreign Investment in the U.S. gave the deal close scrutiny because of foreign ownership concerns. Hutchison backed out in April when the government review appeared to stall, and ST Telemedia assumed its portion of the deal. Global Crossing and ST Telemedia took a number of steps to appease concerns about foreign ownership of the network, and President Bush ultimately approved the transaction in October. The companies signed a network security agreement with the Department of Defense and the Department of Justice. Of the new board of directors, four have U.S. government security clearance and serve on a security subcommittee. In an ironic twist, Global Crossing’s travails before the state could actually help it expand in the lucrative market of government services, because it has been so thoroughly vetted. While Global Crossing does significant business with the United Kingdom’s government, providing services for an array of agencies, it has made little headway in Washington. The Yankee Group has noted that federal spending on information technology may grow as much as 12 percent annually over the next five years. Global Crossing could also be able to win business through systems integrators, which handle a great deal of business that the government outsources. When Global Crossing sought Chapter 11 protection it was the most prominent of a string of telecom collapses, though its filing was later eclipsed by WorldCom Inc., the largest U.S. bankruptcy ever. The company may come to be viewed as a benchmark for a number of upstart telecoms that were forced to reorganize their debts and have emerged from Chapter 11. “They’re a little bit of a guinea pig,” D’Angelo said. “People are going to look for the results, and if they deliver it will be a rising tide for everyone. If they don’t, it could create overhang for the rest.” Copyright �2003 TDD, LLC. All rights reserved.

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